上财国际金融系主任金洪飞国际金融课件Chapter 16.ppt

Chapter 16 OUTPUT AND THE EXCHANGE RATE IN THE SHORT RUN Chapter 16 combines the theory of exchange rate determination with the theory of output determination in the short run. Introduction The model developed in this chapter takes into account the fact that change exchange rates, interest rates and price levels may also affect output (i.e., output is endogenously determined). Therefore, it gives us a more complete picture of how macroeconomic changes affect an open economy. Overview The goods market and aggregate demand Goods market equilibrium: DD curve Asset market equilibrium: AA curve Overall equilibrium Policy analysis with the model Determinants of Aggregate Demand in an Open Economy Aggregate demand The amount of a country’s goods and services demanded by households and firms throughout the world. D = C + I + G + CA For simplicity, we assume that I and G are exogenously determined. Determinants of Aggregate Demand in an Open Economy Determinants of Consumption Demand Consumption demand increases as disposable income (i.e., national income less taxes) increases at the aggregate level. C = C(Yd), where Yd= Y – T (Yd= disposable income), The increase in consumption demand is less than the increase in the disposable income because part of the income increase is saved. Determinants of Aggregate Demand in an Open Economy Determinants of the Current Account The CA balance is viewed as the demand for a country’s exports (EX) less that countrys own demand for imports (IM). The CA balance is determined by two main factors: The domestic currency’s real exchange rate against foreign currency (q = EP*/P) Domestic disposable income (Yd) CA=CA(q = EP*/P, Yd =Y– T) Determinants of Aggregate Demand in an Open Economy How do changes in Disposable Income affect the Current Account? An increase in disposable income increases domestic consumers’ spending on all goods, including imports from abroad. That will lead to a decrease in the current account. Determin